The Victorian Invention of the Modern Company

George P. Landow, Professor of English and Art History, Brown University

In his review of John Micklethwaite and Adrian Woodbridge's history of the modern commercial company, Andrew Gamble points out its essentially paradoxical nature:

The company has always been one of the great mysteries of capitalism: liberals and socialists have never known quite what to think about it. The company is collectivist and co-operative, based on hierarchy, bureaucracy and planning rather than individualism, competition and exchange. Companies appear as little islands of socialism in the market sea. [10]

Economic liberals like Adam Smith disliked companies because they "believed in owner managers and the principle of unlimited liability" (10), but the sheer amount of the money required to create British railways and other technological innovations required novel conceptions of ownership and financial responsibility. Investors in early railways (who had the old-fashioned unlimited liability) found themselves facing loses greater than their initial investments when the firms in which they owned stock lost money and they had to cover debts incurred by management. Traditional conceptions of the commercial company, in other words, sharply discouraged risk-taking, entrepreneurship, and innovation. These limitations in traditional commercial law prompted what Micklethwaite and Woodbridge correctly describe as the "revolutionary idea" embodied in legal changes between 1844 and 1862, which were matched by similar reforms in Europe and the United States. According to Gamble, "These changes have never had the attention they deserve, but they were among the most far-reaching of any of the Victorian reforms: they transformed the nature of the company, and made possible the extraordinary growth of corporate activity and the rise of the company as the dominant institution of capitalism in the twentieth century" (10).